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ORCHARD HILLS CO-OP. v. GERMANIA FEDERAL

September 12, 1989

ORCHARD HILLS COOPERATIVE APARTMENTS, INC., ET AL., PLAINTIFFS,
v.
GERMANIA FEDERAL SAVINGS AND LOAN ASSOCIATION, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Richard Mills, District Judge:

OPINION

Another chapter in the unremitting saga of RICO.

This cause is before the Court on the Germania Defendants' (Germania Federal Savings & Loan Association, David Kilduff, and David Stelbrink) renewed motion to dismiss Plaintiffs' civil RICO claims (Counts IV, V, VI) in light of recent Seventh Circuit cases which flesh out the "pattern of racketeering" requirement of RICO. 18 U.S.C. § 1962(a).

Further, Defendants challenge the constitutionality of RICO on void for vagueness grounds.

I — Facts

The facts as pled in the complaint — and assumed to be true for purposes of this motion — are somewhat lengthy, but important to the resolution of the motion. Plaintiffs are Orchard Hills Cooperative Apartments, Inc. (Orchard) and its President, James E. Berger. The Defendants include Germania Federal Savings and Loan Association (Germania), whose principal place of business is Alton, Illinois, with offices in Springfield, Illinois. Defendant Stelbrink (at all relevant times) was Vice-President of Germania. Defendant Kilduff (at all relevant times) was Germania's principal officer responsible for the management affairs of Orchard. Defendant Michel-Potter Properties is an Illinois general partnership whose principals are Defendants Michel and Potter.

In 1973, real estate developer Frank Brewster constructed a 136-unit apartment complex in Springfield, Illinois, originally called "Georgetown Colony Apartments." In 1973 or 1974, Germania, which had provided the financing for Brewster, foreclosed on the property — thereby becoming the beneficial and equitable owner thereof. Germania then formed Orchard Hills Cooperative Apartments, Inc., as a not for profit corporation, placed title to the foreclosed property in the name of Orchard, and renamed the complex "Orchard Hills Apartments."

In September of 1977, Orchard gave Germania a first mortgage on the complex. At the same time, Germania contracted with Orchard to act as Orchard's agent (for a management fee) to care for the property — collect rent, prevent waste, manage the financial, legal, and day-to-day affairs, and most importantly to find a purchaser for the property. Pursuant to this agreement, Germania, through its agents Kilduff and Stelbrink, identified Michel as a prospective purchaser. Kilduff and Stelbrink then negotiated the material terms of the proposed sale with Michel and, in November 1980, presented the proposed sale to Orchard's Board of Directors.

The upshot of the transaction was this: Michel-Potter bought Orchard for $2.95 million and then, on the same day, sold it to a group of investors for $4.4 million — thereby making a healthy profit. Meanwhile, Germania substituted a $2.7 million mortgage at 8.75% for a $4.4 million mortgage at 14.5%. (Orchard knew nothing of Michel-Potter's subsequent sale until September of 1984 — nearly four years later.)

In support of their RICO claims, Plaintiffs assert that Defendants committed numerous acts of mail and wire fraud, that they were involved in a scheme to defraud Plaintiffs, and that the "continuous association of Defendants in the enterprise while committing the unlawful acts . . . constitutes a pattern of activity."

II — Motion to Dismiss

In ruling on a motion to dismiss, the Court "must accept the well pleaded allegations of the complaint as true. In addition, the Court must view these allegations in the light most favorable to plaintiff." Gomez v. Illinois State Board of Education, 811 F.2d 1030, 1039 (7th Cir. 1987). The applicable rules do not necessitate a detailed outline of the claim's basis. Ellsworth v. City of Racine, 774 F.2d 182, 184 (7th Cir. 1985), cert. denied, 475 U.S. 1047, 106 S.Ct. 1265, 89 L.Ed.2d 574 (1986). Still, a "complaint must contain either direct or inferential allegations respecting all the material elements necessary to sustain a recovery under some viable legal theory." Car Carriers, Inc. v. Ford Motor ...


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